Trade deficit widens unexpectedly to record one-month increase

The U.S. trade deficit widened by 19 percent in June. Some economists to believe the U.S. economy is headed from recovery toward a double-dip recession. Lauren Manning/Flickr photo.

Wall Street went into a panic Wednesday as the Commerce Department reported a sharp increase in the U.S. trade deficit in June. After narrowing in recent months, the U.S. trade deficit unexpectedly widened in June by a record $7.9 billion. Stocks nose-dived at the news. The trade deficit also led analysts to believe that U.S. economic recovery slowed more than they thought last quarter. Some economists warn that an unsustainable trade deficit will provoke a double-dip recession.

Strong dollar spurs U.S. trade deficit in June

The Commerce Department said the trade deficit ballooned much more than analysts expected in June, after the stronger dollar made it easier for people in the U.S. to buy cheaper exports, particularly from China. The gap widened to $49.9 billion, up from a revised $42.0 billion in May. The Washington Post reports that economists had been expecting a smaller gap after a recent drop in oil prices. Imports in June rose to $200.3 billion, from $194.4 billion in May, as U.S. shoppers bought more consumer products, auto parts and other goods from overseas. Exports fell to $150.5 billion from $152.4 billion. U.S. companies struggled to sell products such as industrial supplies, food and consumer goods to foreign customers.

Trade deficit widens to defy forecasts

The anticipated trade deficit for June was $42.1 billion — the median forecast of 73 economists in a Bloomberg News survey. Instead of a further decline from a $42.3 billion trade deficit in May, the gap increased 19 percent. Bloomberg reports that the June trade deficit adjusted for inflation, which is the figure used to calculate gross domestic product, increased to $54.1 billion, the highest since February 2008 during the worst of the financial crisis. The disappointing numbers prompted some economists to reduce estimates for second-quarter growth to around 1 percent to 1.5 percent.

Some say U.S. unemployment is a bigger problem

Economists don’t agree on whether the trade deficit in June’s sudden and marked increase means the U.S. is in danger of heading into a double-dip recession. The Christian Science Monitor reports that while the unsustainable trade deficit isn’t good, it’s not the locus of the bigger problem of U.S. unemployment. Trade deficits coexisted with domestic job growth for years prior to the recession. The more important issue is reviving domestic consumer demand and business investment.

Others say trade deficit is the root of the U.S. unemployment problem

The Monitor article said some economists think bold efforts to fix the trade deficit could actually hurt economic recovery if they blunt the trend of expanding global commerce. To others, the trade deficit is a critical problem that must be addressed. In a written analysis, University of Maryland economist Peter Morici said oil and consumer goods from China account for nearly the entire trade deficit, and without a dramatic change in energy and trade policies, the U.S. economy faces unemployment around 10 percent indefinitely.